Company / Analytics

Analytics, 05 May 2022

Why you should consider travel stocks

There is growing optimism that 2022 may be the year we start seeing a meaningful return to near pre-pandemic related holidaying and travel. This optimism will likely bring plenty of interest in travel and other BEACH industry stocks. The BEACH industries — booking, entertainment, airlines, cruises, and hotels – were the most affected during the Covid-19 season.

The BEACH industry is experiencing recovery and is set for a rebound this year. In their latest quarterly earnings reports, airlines, hotels, rental car companies and booking sites all reported a surge in demand for their services. Though the industry faces a tight labour market as they scramble to get ready for the surge in demand, the stocks are worth considering for the medium and long term.

Travel stocks report a surge in demand

BEACH industry — booking, entertainment, airlines, cruises, and hotels – reported a surge in demand for their services in the latest quarterly earnings reports. The surge in demand indicates that consumers are ready to travel more during this summer compared to the last two years when Covid-19 pandemic lockdowns sheltered them in place.

The surging demand will likely strain capacity and push prices even higher, resulting in better earnings for these companies. Though many of those companies still face a tight labour market, earning potential remains for investors. Some of the best travel stocks to consider as demand surges include Bookings, Royal Caribbean Group, Marriott International, American Airlines Group, Airbnb, Expedia Group, and InterContinental Hotels Group.

1. Booking Holdings

Booking Holdings is a travel tech company with an ownership in several segments of the travel and tourism sector. Booking operates aggregators and metasearch engines for airfare, hotels, and rental cars. Its platforms include Booking.com, Priceline.com, and Agoda.com. In the last few months, the company has been on an aggressive merger and acquisition (M&A) activity. For example, in November last year, Booking acquired Getaroom for $1.2 billion with the express aim to increase their collaborations and take a greater share of the travel industry market.

Booking also acquired Etraveli Group for $1.83 billion to help offer customers an easier booking of flights with no friction or waiting time.

On the other hand, Booking’s subsidiary Kayak, alongside Inovia Capital, led a $60 million Series C funding round for Life House. The company wants to provide independent travellers with an easy way of managing hotels. Booking remains a solid performer. In its latest earnings report, Bookings topped expectations and said it expects to benefit from a busy summer travel season.

Booking shares rallied 11% after hours on Wednesday, following a 0.1% decline in the regular session to close at $2,103.33. The company reported a first-quarter loss of $700 million, or $17.10 a share, compared to a loss of $55 million, or $1.34 a share, in the year-ago period. Adjusted earnings were $3.90 a share versus an adjusted loss of $5.26 a share in the year-ago period.

Executives noted that “despite an uncertain macroeconomic environment, we have seen continued strengthening of global travel trends so far in the second quarter of 2022, and we are preparing for a busy summer travel season ahead.”

2. Airbnb

The home-sharing agency went public through an IPO in late 2020, and was not spared from the impacts of the pandemic. Still, the platform maintains its status as one of the world’s best-loved holiday apps.

The company reported results that showed continued recovery from the pandemic, and positive outlook for the year. Executives noted that “two years into the pandemic, Airbnb is substantially stronger than ever before.”

Bookings on the platform reached 102.1 million in the first quarter, the first time it has hit the 100 million mark in a quarter, exceeding analyst expectation of 100.8 million. This was an increase of 26% compared with the first quarter of 2019, and excluding Asia Pacific it was up almost 40%. Gross bookings revenue reached $17.2 billion, above estimates of $16.6 billion and up 73% compared with the 2019 quarter.

Executives noted that Airbnbs outlook reflects that of the broader travel market, as its CEO Brian Chesky said “people are also more confident booking travel further in advance, and we’re seeing strong demand for summer bookings and beyond.” Airbnb has seen 30% more nights booked for the summer season as of the end of April, more than during the comparable time in 2019.

3. Airline stocks

Airlines have seen travel pick up again in recent quarters and their earnings show why they should be in your radar in 2022. Airlines expect strong earnings during peak travel periods in the remaining quarters of 2022.

For instance, Delta Airlines said earlier this month that it expects unit revenues to increase double digits in the second quarter compared to pre-pandemic, three years ago. The company also expects overall sales to recover up to 97% of 2019 levels.

Meanwhile, Alaska Airlines, one of the profitable Airlines (the other being Delta), set a sales record in March, despite slightly reducing its schedule due to pilots’ shortage.

Analysts including CNBCs Jim Cramer, advise that despite a bullish airline market, investors should avoid some unprofitable carriers such as Spirit Airlines, Jet Blue and Frontier, especially as they remain engaged in a bidding war.

4. Cruise stocks

No industry was more affected, at least at the beginning of the pandemic, than the cruise industry. At the time, it appeared it looked as if cruise vacations as we knew it was over. But overtime, we have seen a gradual recovery, and a rebound is coming.

The three companies that are still going strong in this sector include Royal Caribbean Cruises, Norwegian Cruise Line Holdings, and Carnival. Rating agencies reported that these companies lost almost $900 million monthly during this period. But the industry has a loyal customer base, and analysts are optimistic that cruise lines could reach pre-pandemic passenger levels in less than a year. Most customers converted their pre-pandemic tickets to credit for future travel.

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